Everybody, my name is Manav Patnaik. I'm Barclays' Business and Information Services analyst. Thank you for joining us here again at our TMT conference. Unfortunately, it is virtual again. I'll say it again. I've said it all year, but hopefully next year we're in person. Until then, we'll do with the Zoom sessions.
You know, I'm very pleased to have with us back again this year, Clarivate. We have Jerre Stead, who's obviously the CEO and Chairman of the company. Perhaps two new faces for some of the audience, but you know, Gordon Samson, who leads the IP product group, and Mukhtar Ahmed, who leads the science group. Thank you all for being here. Really appreciate your time.
It's good to be here, Manav. Someday, we'll see each other again. You may not know this, but I've yet to meet Gordon. I'm looking forward. I haven't seen Mukhtar probably for 23, 22 months. It's amazing.
Yeah. Quite fascinating. Well, just for the audience, and I'm gonna have a few questions prepared for the three gentlemen here, but if you have any questions, feel free to type it in the box or email me, and if I can, I'll squeeze them in. Otherwise, you know, let's just get right to it.
Jerre, maybe just to start with you. Obviously, last week we had a big announcement. You closed your ProQuest acquisition. It was an agonizing wait, if that's the right phrase. You know, maybe just some thoughts on your end now that it's closed, you know, just some quick reactions on how positive you are on the deal.
Yeah. No, Manav, great comments. Thanks. Couldn't be happier. The only good thing, and I think, Mukhtar and Gordon and the rest of us would agree, we had five months to be over-ready. I mean, so on day one was off to the races. Couldn't have been better. We got great feedback.
We did a town hall. We closed at midnight and did a town hall the next day. We'll get Mukhtar to comment in a minute, but the energy level and the excitement with our friends at ProQuest were enormous. We look forward to this one. It's one we laid out, I think you remember, Manav. I had hoped that we would close this in mid- to late 2022, but it became clear actually in February 2021, this year.
I had Andy at my house, Andy Snyder, the CEO of the holding company, for four hours masked, when he told me that they were looking at doing an IPO. I spent the next two or three months with Mukhtar and others, very active, helping him understand why it would be much better to do what we were able to accomplish. Just couldn't be happier. Mukhtar, you might just comment 'cause Mukhtar's been face to face with them now for five or four days, huh? Five days.
Yep. Yep. Five official days for sure. In general, the response has been phenomenal, not just from, you know, within our organization. You know, the new ProQuest colleagues, you know, our Clarivate colleagues, lots of excitement there. But what's really interesting is, you know, the response and feedback that we've had from customers. You know, just quite phenomenal in terms of the response we've had there.
Not just from, you know, the traditional buyers and decision-makers in, you know, in academia, in the educational sector, across research, publishers and so forth, but it's also the true end customers, the actual end users. You know, it's fabulous for us to kinda see, you know, just a wave of enthusiasm and sort of positive sentiment, you know, towards, you know, this union of our companies.
You know, we're especially excited here because what we bring now into that educational sector, you know, primarily from all of our expertise in the research and innovation space, it's, you know, it's just so complementary here, and it means that we can, you know, just serve all of those customers with, you know, just even better value and give them access to just terrific resources over time.
Got it. Maybe if you can just take a step back a bit, Mukhtar. In terms of, you know, ProQuest, the deal itself, I know. You know, maybe just help the audience appreciate what ProQuest is and, you know, how it's complementary to what Clarivate already have. 'Cause there were, you know, a few questions because of the second review by the FTC, whether there was some kind of overlap or issues there, which we know it wasn't. Maybe if you could just help the audience appreciate that.
Yeah, absolutely. I mean, what ProQuest brings is just market leadership in that educational space. Think about the K-12 educational space, think about early research, so particularly you know, undergraduate studies in academia. Think about all of the libraries across the globe, both public libraries as well as you know, private libraries, which typically are knowledge centers.
What ProQuest do is they serve all of that space. They have some really wonderful assets. You know, books, workflow systems that serve those libraries, dissertations, you know, just a wealth of data and content, and then, of course, the software to support that. Essentially, it's a business with some really good you know, cloud and software as a service-based offerings.
Of course, coupled with you know the content that you know of course they curate. It's that capability now fused with the Clarivate capabilities, which really serve the research and innovation community. You know, typically academic research, corporate research, corporate innovation.
This is not just our science portfolio, but all of our intellectual property capabilities, 'cause it's all about protecting innovation and ideas. What it's allowed us to do is very much serve right across the continuum of what we're calling learning and knowledge. We think about knowledge acquisition and learning is the core of what research is founded upon.
What we can now do is really serve that value chain from its first stage, which is typically in that K-12 educational sector, all the way through research into the corporate sector. We can fuse that together in that experience, and that's why this is so exciting.
Got it. That makes sense. Jerre, you know, just in terms of talking about synergies, you know, I know you don't bake in revenue synergies in when you make these deals. Can you just maybe round up what Mukhtar just told us in terms of how we should think about if there are any revenue synergies, 'cause I think ProQuest was growing about 6%, which is, it sounds like around where science is growing now too. Just thoughts there.
Yeah, no, that's great. Just as a reminder, Manav, we said that when we announced the deal, we'd save $100 million of cost, and we'll do that plus some, and that's great. This one probably has more short-term cross-selling that—'cause it's really not cross-selling, if you think about what Mukhtar just said.
It's really taking their products and ours and bringing them together, and that's what makes this one really exciting. Example only, the software that they've built in the last few years and acquired is outstanding, and it's just great.
They are, I think, Mukhtar, I believe I'm right, they're on about 2,000 campuses around the world. We're on 6,400. So that's just a good example of what we'll be able to do with selling and complementary, particularly for the universities.
The software will provide significant cost reductions for the universities, and that's a bit special for them. Couldn't feel better about that. We complement each other really well in the back room, et cetera. We're feeling, I'd say in total upfront, this one's as strong as I've had in a long time for bringing the two together. Partly because, even though painful, we've had five months to be ready on day zero. Just couldn't feel better.
Got it. Maybe just to wrap up on the ProQuest side, two follow-ups. Jerre, first for you know, the $100 million you talked about, the cost savings and more, I think you said, you know, post that, your margins would be 47%. So, you know, can you just talk about the timing and cadence around when we should expect that? 'Cause I guess next year's guidance is 42.5% or so.
Yeah. When we exit our run rate at the end of 2022, we'll be well on the way to that 47%-48% all in for the entire company. I think Mukhtar would agree with me. We're five months behind the original schedule. I think we'll make up at least two, maybe three of those months going forward, 'cause the team have just done a great job. What you should think of is in-year savings, $42 million. Exit savings, $85 million-$87 million.
Got it.
Which means the stub, if you will, I think Mukhtar and the rest of the team into first quarter of 2023.
Got it. Mukhtar, in terms of just the combined top line organic growth, how do you look at the potential of the business now?
Yeah. I think the way to look at this is, and excluding the adjacent market, and I think Jerre alluded to this, where we can take some of these offerings, for example, into, you know, some of our adjacent corporate markets. Particularly kind of the retail consumer markets, where we can take, for example, some of the library offerings and sell into those.
Excluding those, but purely focusing on what we call our academic and government vertical, the addressable market just through this is, you know, it's risen to about $30 billion for us as an addressable opportunity. Within that, you know, there's lots of opportunity for us to, you know, continue to grow and expand these assets, take those to market, look at geographical opportunities where we can expand.
Of course, you know, we're gonna continue to grow and develop these offerings as well over time. I'm, you know, very optimistic here that we can achieve, you know, good, you know, sort of good growth here with all of these offerings.
Got it. Okay, maybe just to switch a bit to the IP segment. You know, Gordon, you obviously came from CPA Global. That was the, you know, acquisition right before this, I guess, of size. Maybe, Jerre, if you wanna kick it off, lead it off in terms of how that integration is going or has gone. Perhaps, Gordon, if you could just help us appreciate, you know, if that integration can help us, you know, look into what ProQuest could probably do here as well.
Yeah, I'll kick it off. Couldn't be more pleased. We said originally $100 million. We'll end up at $125 million. It's 85% done. We've got back room work to add, but just a great one all the way around. One other quick comment, 'cause it's helped us so much.
When Gordon joined us a year ago in October, we asked him to head up Asia Pacific for six, actually nine months, and put in place the One Clarivate effort that we've now moved to. That gave us a great opportunity to look at what we were doing.
He stepped out of that, did a wonderful job, couldn't be more pleased, and then took over all of IP. IP, just for a second, now we're north of $1 billion in the IP world. Our next closest competitor is $250 million, maybe, giving them the benefit of currency or something. That's the huge step we've had. Take it from there, Gordon, please.
Sure. Thanks, Jerre, and thank you for the question, Manav. For those hearing the echo, I've moved house but not moved furniture yet, is the story that Manav and I shared. Just so you understand,
That's okay. We will give you enough money to get the furniture, I promise.
I'll get some better quality carpets after the year end.
Good.
Look, you know, the CPA integration, Jerre's right, is more than 85% done. What's really good about it, I think are two or three things, so let me try and pick out some highlights. First of all, the go-to-market organization led by Steve Thompson has brought together our sales organizations and, rather than selling bundles or cross-selling, we moved to solution-based selling really quickly, so we're ready for 2022.
I think that combination of the Clarivate structures with CPA's solution sale into the renewals and IP&S world was really critical to that. It's a real success for me. I think what I would say, and Mukhtar knows this very much, is that when we did a very, very good lessons learned around what went well and what we could do better in the CPA integration, and those lessons I can see being applied, frankly, from before the deal was closed, with ProQuest.
You know, we're building each time we do one of these, on what we did well and what we can always do better. There's always a bit more you can do. I would say we're in terrific shape for the ProQuest integration based on that. I think finally, just to bring it down to sort of basic, let's think about the customer here. You know, we very quickly integrated, you know, some of our software and workflow products with CompuMark data.
We have Darts-ip litigation data, one of the best data sets in the world in this space, probably the best, if I can say that, integrated across not only the IP software suite, but also in the science business, as Mukhtar knows. I think our focus on delivering to the customer has been the thing that's been most pleasing, which is to integrate our data sets, to bring our solutions or our products into solutions.
Of course, that job is never done. It almost never ends. That's been our focus. I think delivering for them is what they'll measure us on as opposed to doing the internal things that, frankly, we know we'll do. You know, I think Mukhtar would agree that I think the learnings from CPA, I think, make the ProQuest integration. We're even more confident about timing and outcomes.
Got it. Jerre, just, you know, similar question on the revenue synergy side. You know, I think can you just, remind investors again of the overlap or lack of overlap and what opportunity that presents, especially since you've had, you know, CPA in your portfolio for some time now. How should we think about, you know, if we get more than 6% growth here?
Yeah, no, that's a great question. The answer is the selling of solutions. Manav, when we did November ninth this year, when we did our investor day, actually, Mukhtar, Gordon, and Steph, our Chief Technology Officer, gave great examples of what the solutions do as we move to One Clarivate.
There you'll see there are incredibly good examples of how we pull those pieces together, and are doing it as we speak, both in science historically and very much in the IP. It's just it couldn't be better. I know. What we're learning is our ability to go outside in versus inside out is opening platforms for our customers that they've never had the opportunity to use before in the businesses that we're now in.
It just couldn't be better. We'll see the full impact of that in 2022. The other thing is what's exciting to me, just as an example, you can pick places like universities as an example, where Mukhtar explained what a great advantage ProQuest has with our Clarivate business.
That same, as we move to those four global businesses, that same thing applies for life science, selling into the research universities, and for sure, the same thing applies into our IP business, where we can sell and save the universities a great deal of money, by us managing all of their intellectual properties, and particularly the patents.
If you think about it, and again, if you spent five minutes on our November ninth Investor Day site, you'd see that living, and we'll see more and more of those. You should be thinking about how those products all come together into solutions in those four global markets.
Got it. You know, Jerre, in terms of the, so it sounds like there's obviously a lot of good things going on in science and IP here, but in terms of the 2022 guidance, you know, I think there was 5%-7% organic growth. Is there any difference between the two divisions in terms of one growing faster than the other?
No, great question. Actually, I'm sorry if we created confusion. We didn't really give organic growth because remember, for the year. Let me say it differently. That organic growth will only have one month of ProQuest in it. You're really looking at where we were in the base before we added ProQuest.
I would be thinking, and we'll give you a much crisper, Manav, in the next few days. We'll give you an 8-K that describes exactly what we'll see coming out of the inorganic until December of next year and what we'll expect to get. You would see the guidance that we would give if it was standalone Clarivate without ProQuest would be 6%-8%.
Okay. Got it.
Yeah.
You know, Jerre, the other question we get a lot about, you know, perhaps you can help, with the help of Gordon and Mukhtar, help us appreciate it, is the big fourth quarter ramp that's required.
Mm-hmm.
To meet, you know, the guidance that you set for this year for 2021. You know, part of that obviously is the heavy weight to fourth quarter or second half from DRG. Part of that is, I think, the transaction business from CPA Global. Maybe if you could just give us the high level and if I could just ask Gordon and Mukhtar from their perspective to help us appreciate why or at least appreciate the visibility that you guys have for that.
Yeah, that's a great comment, Manav. The business itself before those two major acquisitions, and then we can close on that part in a minute about what it'll do adding ProQuest. The business itself before CPA and before DRG was about $48.5 million-$51.5 million. $48.5 million first half, $51.5 million second half. That's the base.
We're always gonna see that because they're spending on transactions in both science and IP, that comes in the second half, the late September and all of October, November, December. We see the same thing on a historical basis with pre-CPA. That's the base. I'll just set the other two up, and then Mukhtar and Gordon can talk about them.
On top of that, DRG historically has been 36% of the total revenue. On a historical basis, it has come in the fourth quarter. Mukhtar can expand on that in a minute. CPA's always about four points higher in the fourth quarter than the third quarter. That's because Gordon can comment on that.
It's because so many of the annual renewals and patents are required to be renewed annually that we manage for so many people. They come in the fourth quarter. Mukhtar, start with the. By the way, quick comment when you're doing that, what we're trying to do to take a bit of that hockey stick out of DRG.
Sure. Happy to do so. I think, Manav, the way to look at this is, you know, traditionally in life sciences and healthcare, you know, if you look at, you know, the companies that operate in that space, and particularly the pharma companies, you know, they operate on a calendar year, not necessarily a fiscal year when it comes to budgeting.
Typically what happens in Q4 is when they need access to data to drive decision-making so that they can then determine their portfolios for the subsequent calendar year. That's what typically happens. That's why Q4 is a time when there's a lot of demand for data, for reports, for expertise. That's why with DRG historically, you've seen that Q4 ramp up. It all happens in Q4.
What we've done here since we've acquired them is we've invested in particularly the data assets. Rather than one time at the end of the year, we've moved them more into a data-as-a-service offering. We've layered on analytics. It's not a one-time transactional deal in Q4 to meet that budgeting cycle, but we try and provide that intelligence through the form of our software, which, you know, as a service and to the data as a service.
That means that we can bring that forward. It becomes equalized through the years so that we are part of the strategy planning in pharma. When it comes to the budget allocation, well, we've done all of the work beforehand. That's how it flattens out over time.
In addition to that, what we've layered on is a lot of our data science and expert healthcare consulting. Rather than being, you know, point-in-time projects, we've moved more towards volume commitments where customers can use that expertise in conjunction with the data, in conjunction with the software, that we've built, you know, for the analytics. It means that over time, we'll level that out during the course of the year.
Just before you start, Gordon, Mukhtar, I should have mentioned, just give them a quick, the other one-time events that are the heavy transaction in Web of Science in fourth quarter.
Yeah, I mean, very similar there as well. You know, a lot of customers historically have come to us very much for the same reason, and this is typically in academia, universities that have asked for a snapshot of, you know, the Web of Science, data files. Very same thing there. You know, I think earlier this year, we launched our new next generation of Web of Science.
We've launched our Research Cloud, a whole heap of new products, including EndNote. Again, the same thing there is to shift customers towards not this one time, give us the data, you know, in, you know, in a structured one-time format, but again, get access to the same capabilities. You know, Web of Science, data as a service, you know, the next generation of analytics that we now have embedded into that platform. Again, we'll see the same effect there as well.
Got it. Thanks. Gordon, please.
Thanks, Jerre. The IP team are always very jealous of Mukhtar's quarter four big round of deals. We're delighted, but we're very envious of those big round of deals. For some reason, Manav, quarter four, it has an uptick in transactional business in the IP business.
It's about budgets, a bit like Mukhtar said, but it's about spending the money you have, because if you don't, then you're not guaranteed that it will roll into the next year. That does affect our transactional spend, not in every service line, but overall, it has a positive effect. Our software sales equally have a natural, you know, December-ending cycle. Deals that are in the pipeline that are dragging out, we often find will close out in Q4.
Doesn't impact Q4 revenue, but it sets you up nicely for the new year. The thing which really drives the sort of four points that Jerre described is the recurring or the annuity payments business for trademarks and for patents. Why is it like that? Well, it goes back about 20 years at a time, 'cause these things roll 10-20 years. Historically, we've always enjoyed a big Q4.
There's a very big quarterly payment cycle around about November, December time. 75% of that business, Manav, is highly predictable months and months in advance. The 25% that is less predictable for most businesses would still be considered highly predictable. Our confidence level in Q4 is generally pretty high, frankly, a long way out from Q4. Those are the general factors that come into play.
The last thing I'd add to all of that, Manav, for 2022, you should think about ProQuest being about 49% first half, 51% second half, and it's because of what Mukhtar was describing with academic and also what Gordon talked about. All in next year, I think if I were planning the budget like we have, it's. I'd use 48-52.
Got it. All right. You know, Jerre, we have a few minutes left here, so I gotta ask on M&A, of course. You know, I think in each of the last three TMT events like this one, I asked you the question about, you know, the next big deal, and each time you told me you're not ready yet, and each time you did it way quicker than we expected.
Tell me now that ProQuest is closed, your leverage is, you know, elevated at the moment, you know, when do we see the next big deal?
Yeah, that's a great question. I'd say three things about that. We really weren't ready for any of those, but the team has executed better than I could have ever expected. Like I said, if we could have done it, Manav, it would've been first quarter 2020 for DRG, second quarter 2021 for CPA, and third quarter, probably fourth quarter of 2022. But I'm delighted where we are, 'cause that puts us at a $3 billion run rate, certainly, 47%-48% EBITDA when we exit 2022.
What's really exciting to me, to answer your question, is that we're gonna have free cash flow of $1 billion a year. That then lets us make the decisions of acquisitions. I think what you should be seeing in 2022, we'll continue the tuck-ins. That pipeline's great.
We will wait to see how things play out with the Federal Trade Commission, et cetera, and probably be thinking about the next larger one second half 2023. That would be the more logical way to think about it. I would also say a couple of other things. I've been, you know, I've done about 230 acquisitions. We've never built a better team.
Like, for example, with Mukhtar leading the integration right now, he's got great support team, and I just couldn't be more pleased. You know, Integrating a billion-dollar business that's 51 years old, and by the way, we're adding a lot of incredible talent too with it, so we'll wanna make maximum use of that. 2022 should be the year that we button down everything, get it ready to go, and have the gunpowder, if you will, as we go into 2023.
Got it. All right. Well, Jerre, I think we're right about on time here, so let's end it there. You know, I just wanted to thank Gordon and Mukhtar for making an appearance here as well. Thank you as well, Jerre, as always.
I'm delighted to always be with you, Manav. I'm very pleased to have Gordon and Mukhtar, 'cause they're just a great set of great executives that we're now excited about what we're gonna do in the years to come. Last comment I would make, we've got better views today of where we are with what we've gotta accomplish each quarter than we've ever had. We started with none in 2019. Today, I'm very proud of where we're going and what we've done to execute better and better in 2022. Thanks very much. Thank you, Jerre.